NYT : To Keep U.S. Jobs, Chip Makers Share

To Keep U.S. Jobs, Chip Makers Share
a Factory and Pin Hopes on Trump
Computer chips are still made in the United States, but foreign
competition is looming. The industry wants President Trump to help.

LEHI, Utah — Nestled at the foot of the Wasatch Mountains here, the IM Flash plant is a paragon of American high-tech manufacturing.
Robots glide along the ceiling, moving silicon wafers the size of dinner plates between hulking machines that deposit and etch microscopic layers of material to build the most advanced memory chips in the world.
For the 1,700 technicians and scientists who tend to the robots and troubleshoot problems in the delicate manufacturing process, the jobs offer generous pay and benefits and easy access to Utah’s many outdoor attractions.
For Intel and Micron Technology, the two American companies that jointly own and operate IM Flash, the venture allows both of them to sell cutting-edge, three-dimensional memory chips while sharing the multibillion-dollar costs of a modern semiconductor factory.
The memory chips produced at the plant are “probably one of the biggest advances of technology in the last 20 years,” said Jon Carter, who oversees Micron’s strategy for new memory products. And, as he was quick to point out, all of the work was done in the United States. “Micron has done a really good job of having a good footprint on the home front,” he said.


In many ways, however, the IM Flash plant is an outlier. While companies based in the United States still dominate chip sales worldwide, only about 13 percent of the world’s chip manufacturing capacity was in this country in 2015, down from 30 percent in 1990, according to government data.
Chips Across America
The United States has 76 chip manufacturing plants, 15 of them in Texas.

N.J.
Utah
Va.
N.C.
Mo.
N.M.
Ind.
Vt.
Fla.
Colo.
Pa.
Me.
Idaho
Wash.
N.Y.
Ill.
Kan.
Mich.
Mont.
Miss.
Md.
Ohio
Wyo.

Okla.
Tenn.
Wis.
Alaska
Conn.
N.D.
Ga.
Ala.

W.Va.
Iowa
S.D.
La.
Del.

Ark.
Neb.

Ky.
N.H.
S.C.
Nev.

Hawaii


Mass.
Ariz.
Minn.
Calif.
Ore.
Tex.
1
2
3
4
5
8
9
15

Source: Semiconductor Industry Association
Chip makers attribute the decline to a variety of forces, including high American tax rates and the hefty subsidies offered by foreign governments for new semiconductor plants, which can cost as much as $10 billion.
“It’s quite a bit more expensive to build a factory in the U.S.,” said Stacy J. Smith, the executive at Intel overseeing manufacturing, operations and sales. Intel — which predominantly manufactures in Oregon and Arizona but also has factories in Ireland, Israel and China — estimates that the extra cost for an American plant is more than $2 billion.
Chip makers are hopeful that President Trump, who has promised large corporate tax cuts and a tougher approach to trade with China, will help them.
Intel’s chief executive, Brian M. Krzanich, made a public display of his faith in the administration this month when he stood by Mr. Trump in the Oval Office to announce that the company would spend $7 billion to complete a leading-edge chip factory in Chandler, Ariz., creating 3,000 full-time jobs.
Intel said it was talking with the Trump administration and Congress about a broad corporate tax cut as well as other ways to improve the financial incentives for chip makers to locate new projects here. Although the United States has 76 semiconductor plants, many of them are older, and few new ones are being built.

Intel, whose work force relies heavily on highly skilled immigrants, is also pressing the administration to continue allowing such immigrants to enter the country. “We benefit from being able to hire the best talent from around the world,” Mr. Smith said.
The chip industry spends about one-fifth of its revenue on research and development, but it wants more federal funding for basic research into fundamental problems, like how to pack transistors closer together and whether materials other than silicon could form the basis of future chips.
“We would like this administration to double down on investments in basic research in universities,” said John Neuffer, the chief executive of the Semiconductor Industry Association, a trade group that represents American chip makers. “Help us pedal faster.”
Foreign countries have become more appealing for chip manufacturers, in part, because of the rise of contract chip foundries owned by Samsung of South Korea and Taiwan Semiconductor Manufacturing Company. They have made it easy for American tech companies like Qualcomm and Apple to design cutting-edge chips in the United States but outsource production to Asia.
Looming in the background is China, which is currently a bit player in the industry but has committed to spend upward of $100 billion to create a world-class chip industry.
“Today, it’s a modest threat, but two, three, four years out, if China plays out as it plans, it could be very significant to subsectors of our industry,” Mr. Neuffer said.
Unlike many of their competitors, Intel, based in Santa Clara, Calif., and Micron, based in Boise, Idaho, build most of their chips in the United States and conduct virtually all of their research and development in this country.

The approach they have taken to 3-D memory chips illustrates the complexity of the business as well as the global forces pushing on the industry.
The IM Flash plant in Lehi was built in 1994 and was Micron’s first factory outside Boise. In 2005, Intel and Micron struck a partnership to expand the plant and make flash memory there, sharing costs and output.
The two companies have spent the past 11 years developing the newest type of memory, which they call 3-D XPoint. The design combines the functions of a computer’s ultrafast working memory and its slower, longer-term storage to create a hybrid aimed at companies like Facebook, Goldman Sachs and Exxon Mobil, which need to process vast amounts of data reliably and at the highest speeds.

David Kanter, the principal analyst at the research firm Real World Technologies, said the technology, which is still being tested by the first round of customers, was very promising. “It could the change the way that computing operates,” he said.
However, as with all new chip technologies, the initial products are likely to be expensive. The Lehi plant will continue to make traditional, cheap 2-D memory chips while gradually expanding production of the newer chips.
Both companies have turned to foreign factories to hedge their bets with other products — less expensive, less capable 3-D flash memory designs aimed at the broad slice of the market that wants better performance but is unwilling to pay top dollar for the best technology available.
Micron committed $4 billion to expand a plant it owns in Singapore to make the 3-D flash memory chips, which it began selling last year.
Intel converted an aging factory it built a decade ago in Dalian, China, into one that produces state-of-the-art 3-D memory chips.
“China is the largest market for us on the planet,” said Mr. Smith of Intel. “It made sense to locate some production in China.”
Indeed, China is an integral part of Intel’s long-term strategy. Although national security rules restrict the export of certain American chip technologies, the company has found other ways to operate in the country, where most of the world’s computers and smartphones are built.
In 2014, for example, Intel bought a 20 percent stake in Tsinghua Unigroup, part of a state-owned company that is behind much of China’s chip ambitions. As part of the $1.5 billion deal, Intel gained a stake in Spreadtrum Communications, a Chinese chip maker, and agreed to license some of its older technology for Spreadtrum’s system-on-a-chip products.
Given China’s position as the biggest buyer of American chips, the industry is concerned about Mr. Trump’s talk of a trade battle with China. At the same time, chip makers believe that China has sometimes treated American companies unfairly and relish the idea of help from Washington on that front.
In any case, Intel and Micron, which rejected a $23 billion acquisition bid by a Chinese company in 2015, say they intend to keep the bulk of their chip manufacturing in the United States.
Rob Magness, an IM Flash employee who works with the equipment that etches and polishes the silicon wafers, is optimistic, but said he knew just how fragile the industry was.
During his 25 years making chips, he has seen employer after employer downsize and move factories offshore as they coped with the brutal economics of chip making.
“All the places I came from are dying,” he said. “The other two memory companies I worked for actually went under. The prices just got too cheap.”

>>> Tesla Cut to Sell at Goldman, PT $185

TSLA previously rated neutral by David Tamberrino at Goldman.
  • PT lowered to $185 from $190, implies 28% downside from last close
  • TSLA had 8 buys, 10 holds, 6 sells before today
  • This is the first change by Goldman since Oct 6, 2016 when the rating was downgraded to neutral from buy. The shares have climbed 27.9% from $201 to $257 since then
  • Tesla reported earnings that topped estimates on Feb 22

(MS) Cross-Asset Dispatches - All about Values

* All About Values
We explore the reliability and effectiveness of different valuation metrics in predicting future returns across asset
classes.

* Does value work? Yes it does, but not in the short run. One cross-asset challenge we face is defining 'value' for different asset classes, and finding out what really works. In this note, we test for what's effective.

* It does not work for all valuation metrics: More often than not, what one valuation metric claims is 'cheap' does not show up as 'cheap' on another. We compare the average returns from buying during periods when each valuation
metric is 'cheap' and find substantial differences between valuation metrics in each asset class.

* More useful valuation metrics: What's better at explaining future returns?
Price/book and price/sales ratios for equities, REER and spot/PPP for FX, outright spreads and spreads per leverage for credit.

* Surprisingly ineffective valuation metrics: The trailing price/earnings ratio for equities is surprisingly ineffective. Real yields differentials for FX is another.

* Is anything cheap now? GBP, Mexican assets, HSI and HSCEI are all assets that screen cheap on valuation metrics which have proven to be effective historically, and that have upside based on our underlying strategists' forecasts. Meanwhile, US equities, US credit and Brazilian equities are expensive, and our strategists are cautious about them.

(MS) Utilities : The impact of taxes and levies on retail electricity tariffs

The impact of taxes and levies on retail electricity tariffs

Centrica highlighted its average consumer tariff increase of just 1% p.a. in the UK since 2009 this week. Higher taxes and
levies have been offset to some degree by lower wholesale prices. But with levies unlikely to ease, we look at electricity tariffs across Europe, and the future impact.

* Centrica has shown a 1% increase in its residential tariff on average since 2009:
Whilst delivery costs and environmental and social policy costs have continued to rise, wholesale energy costs have fallen leading to limited average tariff growth. With rising wholesale prices, upside pressure could come - we have
already seen some UK suppliers announce large tariff increases starting in March.

* German tariffs have risen more than UK tariffs: 
These are up 3% per annum on average since 2009, and 4% since 2006, driven by the increasing cost of delivery and renewables subsidies. German households now pay €35bn for taxes and levies on energy each year, according to the utility association BDEW. Tariffs are at record highs (although wholesale prices are not).

* We look at how electricity tariffs compare across European geographies, ranking the overall tariff, as well as looking at the amount of levy and tax within it. We also show the increase in this levy since 2012. We would expect taxes and levies
to continue to rise here - if commodities tick up, this could put further pressure on consumers in liberalised markets.

>>> Parmalat offer by Lactalis ruled unfair to minority shareholders by advisor



From: LAURENT CHEKROUN (MAKOR SECURITIES LO) At: 02/26/17 20:30:25
Subject: >>> Parmalat offer by Lactalis ruled unfair to minority shareholders by advisor
Parmalat offer by Lactalis ruled unfair to minority shareholders by advisor (translated)
26 FEB 2017
Intermonte, the advisor commissioned by activist investor Amber and minority shareholders association Azione Parmalat, has ruled in its fairness option that Lactalis’ bid for Parmalat [BIT:PLT] undervalues the company, Italian language daily Il Messaggero reported.
The article cited a statement by Intermonte noting the EUR 2.8 per share being offered by Lactalis is unfair, and estimated Parmalat's shares to be worth between EUR 3.02 and EUR 3.52 a share based on market multiples and EUR 2.9 and EUR 3.58 a share based on actual cash flows.
In December, privately owned Lactalis announced it would launch a voluntary tender offer for all outstanding ordinary shares of Parmalat at EUR 2.80 per share, or EUR 636.7m in total.

WSJ : Bond Market Is Flashing Warning Signal on Trump Reflation Trade

Bond Market Is Flashing Warning Signal on Trump Reflation Trade
Rising bond market seen indicating that valuations of riskier assets may be stretched

Stocks and bonds are again moving in tandem after diverging in recent months—a sign some investors may be losing faith in the so-called reflation trade.
The Dow Jones Industrial Average has soared more than 1,000 points so far this year and closed at a record of 20821.76 Friday. Bond prices, too, are rising, driving down the yield on the benchmark 10-year Treasury note to 2.317% Friday, the lowest since late November, from 2.446% at the end of 2016. Yields fall as bond prices rise.
It is a shift from late last year when investors were selling bonds and buying stocks, anticipating that large fiscal stimulus from President Donald Trump would lead to accelerated growth and higher inflation, a bet known as the reflation trade.

The new pattern is generating debate among investors.
Some money managers and traders believe that a rising Treasury bond market, often seen as a haven for investors, is a warning that valuations of riskier assets—such as stocks, corporate bonds and emerging-market assets—may be stretched. The Dow closed at a record for an 11th consecutive session Friday, the longest such streak since 1987.
James Sarni, senior managing partner at asset-management firm Payden & Rygel, is among those who bought Treasurys in recent weeks.
“The bond market is showing a more realistic view on the fiscal policy outlook than the stock market,’’ Mr. Sarni said. “The bond market has it right.”
Yield Pressure
Stocks have soared amid exuberance for President Donald Trump's policy outlook, but demand for havens has also sent Treasury yields lower. Short bets on Treasury futures have also piled up, raising the risk yields could fall further if investors exit the short positions quickly.
Yield on the benchmark 10-year Treasury


Dow Jones Industrial Average
Weekly net bets on Treasury futures
Term premium on the 10-year Treasury yield

Sources: Ryan ALM (yield); WSJ Market Data Group (DJIA); TD Securities (net bets); Federal Reserve Bank of New York (Treasury term premium)
Julien Scholnick, portfolio manager at Western Asset Management Co., said he bought Treasurys earlier this year while cutting junk-bond holdings.
“At some point the stock and bond markets need to be reconciled,’’ said Mr. Scholnick. He laid out two scenarios for bonds: the 10-year Treasury yield could rise to 2.75% or higher if “everything works out well” with fiscal policy, but the yield could fall to 2% if policy details disappoint.
Other disagree, pointing to factors that remain supportive of riskier assets: improving economic outlooks in the U.S., Europe and China; U.S. corporate earnings rebounding from a recent slump; a gradual approach by the Federal Reserve in raising short-term interest rates and continued bond buying by central banks in the eurozone and Japan.
Mr. Trump is scheduled to speak on Tuesday to a joint session of Congress. Investors will zero in on updates to his proposals for an expansive fiscal policy.
Another sign of caution on the reflation trade is the pullback of the U.S. dollar. The ICE dollar index, which measures the currency’s value against counterparts including the euro and the yen, was 101.12 late Friday, down from 103.82 on Jan. 3, the highest since 2002, according to data provider CQG.

Higher prices for stocks and bonds may also simply reflect investors’ quest for income in a very low-yield world, mirroring a trend in recent years in which both haven bond markets and riskier assets were boosted by major central banks’ unprecedented monetary stimulus.
Treasury yields, the foundation for global finance and a yardstick for valuations of riskier assets, remain relatively high compared with government bonds of Germany and Japan, increasing demand for them.
Money managers say political risk in Europe, skepticism over an imminent rate increase by the Fed and less appealing yields in other major government-bond markets are also stoking demand for Treasurys.
Many investors are not convinced the Fed will act as quickly as once thought given the uncertainty on the U.S. fiscal outlook and elections in France. Investors viewed the Fed’s minutes from its Jan 31-Feb 1 meeting, released last week, as a sign that the Fed may wait before moving rates higher again, even though Fed Chairwoman Janet Yellen signaled earlier this month that a rate increase in March was still on the table.
On Friday, the yield on the two-year German government bond hit a record low of minus-0.959%, according to Tradeweb. The yield on the 10-year German bund was 0.188% and the 10-year government bond yield in Japan was 0.06%.
Some investors are still buying risky corporate bonds, or junk debt, where the yield premium above Treasurys dropped last week to the lowest since the summer of 2014. Emerging-market stocks and bonds have strengthened this year.

In addition, investors have reduced their short bets on Treasurys, suggesting some investors returned to the bond market as buyers, causing prices to rise and yields to fall. Wagers betting on lower prices and higher bond yields, or shorts, had sent the 10-year Treasury note’s yield higher from the record closing low of 1.366% set in July.
Net wagers on higher bond yields via Treasury futures were $73 billion for the week ended Feb. 21, down from a recent peak of $100.7 billion in January, according to TD Securities.
Jack McIntyre, portfolio manager at Brandywine Global Investment Management, said bond bears risk “getting squeezed” should many dial back shorts at the same time—a scenario that could intensify the upswing in bond prices.
Even in the stock market, there have been signs of skepticism.
Utilities companies in the S&P 500, often considered bondlike because of their dividends, were up 3.7% last week, making them the best performers. Other income-heavy sectors, including telephone and real-estate shares, also posted gains. Meanwhile, financial and industrial companies in the S&P 500 lagged behind, marking a reversal from the days after the election, when investors flooded shares of banks and manufacturers while selling government bonds and their stock-market proxies.

FT : LSE-Deutsche Börse deal in jeopardy over antitrust hurdle

LSE-Deutsche Börse deal in jeopardy over antitrust hurdle
UK exchange says it cannot meet deadline on new condition to sell Italy-based MTS

The planned €29bn combination between the London Stock Exchange and Deutsche Börse is in jeopardy after the LSE said it would not be able to meet a new condition proposed by antitrust regulators in Brussels.

In a statement late on Sunday, the UK exchange said it would not be able to sell a fixed income trading platform by a sudden deadline imposed by officials to ensure that the main remedy that the exchanges have offered Brussels will work in practice.

The request from EU watchdogs on February 16 was an unexpected demand on the companies, but the LSE said it would not be able to submit a proposal to sell MTS, an Italy-based venue, by midday central European time on Monday.

“Based on the [European] Commission’s current position, LSEG believes that the commission is unlikely to provide clearance for the merger,” the UK company said.

Furthermore, the LSE added that its sale of MTS would damage its relationships with regulators in Italy if it went ahead, and so would not submit a remedy for the unit.

Deutsche Börse declined to comment.

The dispute puts the merger, which has been more than a year in the making, at risk of collapse. The deal to link London and Frankfurt, Europe’s two largest financial hubs, has been criticised by politicians in both countries, particularly after the UK voted to leave the European Union in June last year.

The deal envisaged the holding company being based in London, with Deutsche Börse’s Carsten Kengeter as chief executive of the merged company.

Critics argued that the changing political landscape has altered the deal’s implications for both London and Frankfurt as financial hubs. More recently, Mr Kengeter has also been under scrutiny for share trading before the deal was made public.

The LSE said it remained convinced about the rationale of the deal and that it would continue to implement the merger. However, it added that it was also confident in its standalone prospects.

The LSE has a 60 per cent stake in MTS, with a consortium of 26 shareholders, mainly European investment banks, owning the rest.

So far the companies have only offered to sell the French arm of LCH, a clearing house majority-owned by the LSE that processes equity, fixed income and derivatives.

It has agreed to sell the unit to Euronext, the Paris-based operator, in a €510m deal. The narrow offer highlights that Brussels’ concerns about competition in derivatives clearing, seen as the most likely block to the deal, were receding after intense discussions with the exchanges.

But Brussels regulators are concerned that the disposal of LCH could be compromised if the trading flow from fixed income that is usually sent to the clearing house were diverted to an asset within the combined LSE-Deutsche Börse group, according to three people who have heard their concerns.

MTS trades sovereign and cash bonds and repo markets, a key market for banks for their short-term financing, and competes with Deutsche Börse’s Eurex and BrokerTec, a platform owned by Nex Group.

It is primarily based in Italy, Europe’s largest market for trading electronic sovereign debt, although it has subsidiaries in the UK, France and the US. Average daily volumes usually exceed €100bn.

In 2015, LCH SA cleared €72.6tn across 15 European government markets. Most of the LSE’s fixed-income business is traded through MTS and cleared through either its UK, French or Italian clearing units.

In a questionnaire to market participants this month, Brussels focused on whether competition could be curbed in two areas of clearing; products that are traded privately between two parties, or that are traded electronically but cleared independently in a triparty agreement. In the latter, the clearing house sits between large banks as they swap their collateral from short-term loans.

FT : The price of power: how to renew a broken policy

Every strategy reaches the point where renewal is necessary. Time erodes what once seemed logical. Technology transforms the range of possibilities. Assumptions turn out to have been false flags. That is the situation now for the UK’s energy policy as spelt out in a report published last week by the economics committee of the UK House of Lords*.

The existing strategy flows from the 2008 Climate Change Act, which gave priority to the reduction of carbon emissions. A target of an 80 per cent reduction by 2050 was entrenched in law and, although it has never been clear how it would be enforced, the existence of a legally binding target has shaped decision-making in Whitehall. The goal, to be reached in five-year steps, overrides every other consideration — including cost and security of supply.

Several assumptions underpinned that legislation:

Nations were about to adopt a common approach to climate change at the Copenhagen conference so there could be no worries about the costs of action damaging UK competitiveness or of emissions simply being produced elsewhere
The prices of oil and gas would inexorably rise because of a combination of growing demand and scarcity of supply
As hydrocarbon prices rose, even heavily subsidised supplies from offshore wind or new nuclear would look cheap
In the process, the UK would build a great new industrial sector providing hundreds of thousands of low-carbon jobs.
The risk of designing a policy around wishful thinking could hardly be better illustrated.

The problems caused by these false assumptions have been compounded by mistakes in implementation. Rather than allowing the target to be met by open competition to find the least expensive answer, ministers promoted specific technologies irrespective of cost. Commitments to intermittent sources such as wind were taken without regard for their impact on the economics of other businesses, such as gas-fired power generation — which is low cost and relatively low carbon.

Some potential solutions, like improving energy efficiency, have been neglected or, as in the case of the so-called Green Deal home energy-saving scheme, laughably ill-designed and ineffective. Investment in research has also been neglected — almost all the recent gains in solar and wind technology have come from the US and China. The figures produced by witnesses to the committee such as Sir Richard Friend, Cavendish Professor of Physics in Cambridge, demonstrate how much UK investment in research has fallen back.

Each unintended consequence of the mis-steps has led to more intervention with government transferring detailed decision-making to Whitehall. That has left ministers and officials vulnerable to lobbying by those in search of what Americans would call corporate welfare. Hinkley Point is the most expensive example of this but it is not the only one. The funding of wood chips as a supposedly low-carbon fuel was exposed in a paper from Chatham House published last week.

Security of supply has been made more vulnerable by the clumsy way renewables have been promoted. The lights are not likely to go off but consumers will find themselves paying through the nose to keep them on. The costs will grow still further if the promised supplies from new nuclear (supposed to provide up to 14 per cent of generating capacity by 2030) do not come onstream on time for technical or financial reasons.

The critique by the Lords committee may be dismissed by some as the work of climate deniers. That is not justified. The report does not question the 2050 target but rather the effectiveness of the policies chosen to reach it. Nor does it dispute the need for the government to be involved. A strategic direction is essential but micro management is not.

The committee’s recommendations start with a reordering of priorities to establish security of supply as the overriding objective. Within a overall strategy set by government, an independent and professional energy commission would be responsible for delivery — for instance by managing open, transparent auctions to identify the cheapest ways of meeting the objectives of security and emissions reduction.

Perhaps most important is the call for a properly funded research centre modelled on the US national laboratories. Following the example of the Crick Institute, set up to advance biomedical science, a UK National Energy Laboratory should be established to identify new ways to deliver a system that would be both low cost and low carbon. As a brilliant recent report on disruptive technology from the Grantham Institute demonstrates, that is how real progress will be made and is where Britain’s skills could make a difference to the global challenge of climate change. I will return to the Grantham Institute’s work in a future post.

The paper from the Lords is not the last word. There are many more aspects of policy to be re-examined — from the North Sea, which is slipping dangerously towards terminal decline, to the transport system and implications of the prospect of significant electrification over the next two decades. In the retail market there is an unresolved issue of trust. But the report is important because in a very careful and judicious way it demonstrates the extent to which the existing strategy has failed and opens the door to a serious debate on what should come next.

*I had the daunting privilege of being an adviser to the committee, which includes senior businessmen and academics, two former chancellors and three former permanent secretaries.